Settle Now

November 16, 1999 Published Work
The Daily Deal, November 16, 1999

Extended litigation would be bad for Microsoft, bad for other software vendors and bad for the public.
From Wall Street to Main Street, Americans are consumed with speculation about Microsoft Corp's future. This national preoccupation was spurred by Judge Thomas Penfield Jackson's findings of fact that Microsoft has monopoly power in the market for operating systems used in Intel-compatible personal computers and has used it to harm both potential and actual competitors, as well as consumers. Even though the proceeding still has several steps to go before a final judgment will be entered, many in the media have stoked the fires beneath this speculation by concluding that Judge Jackson will ultimately order that Microsoft be split into three or more separate companies.
Recent remarks by Microsoft Chairman Bill Gates suggest that the company is staking out a hard line against allowing the government to interfere with its freedom to design its next generation of Windows operating systems any way it wants.
On the other hand, the plaintiffs – particularly some of the state attorneys general – have taken an equally hard line in the opposite direction. Thus, a settlement could elude the parties, even if all of them wanted to settle, at least in theory.
Nevertheless, a settlement agreement is clearly in the best interest of both parties and the public.
Until this matter is resolved, Microsoft's scheduled launch of its Windows 2000 family of products on February 17, 2000 is in jeopardy. Based on the court's findings, it seems clear that Microsoft faces a significant risk that an injunction will issue that could prevent it from incorporating 3-D, voice recognition or other functions into Windows 2000.
Moreover, by playing out the string and allowing the district court to enter a final judgment, Microsoft exposes itself to the threat of "offensive collateral estoppel" in the courts. This doctrine allows potential civil damages antitrust plaintiffs to rely on the findings contained in the final judgment and bars Microsoft from relitigating these issues.
The government and the public interest would also benefit from a settlement by avoiding the risk that a higher court may overturn the victory the government has already achieved in the district court. In June 1998, Microsoft successfully appealed a previous adverse ruling in its ongoing battle with the government to the Court of Appeals for the District of Columbia Circuit. That court, finding in favor of Microsoft, stated that courts should avoid interfering with design decisions by high-tech firms engaged in innovative new technologies so long as there is some plausible consumer benefit involved.
What is more, Microsoft may not even get a chance to repeat its success in the D.C. Circuit. Under the Antitrust Expediting Act, the government can seek immediate review in the U.S. Supreme Court of Judge Jackson's final judgment.
While it is not clear that the Supreme Court would affirm the lower court's final order, most observers think that the government has more support in the high Court than it does at the D.C. Circuit.
The best course for all sides should be to seek an acceptable compromise soon. Much of the conduct criticized in Judge Jackson's findings involves specific exclusionary practices and pressures Microsoft exerted on original equipment manufacturers, Internet service providers and other entities. These practices can be dealt with relatively easily, in a settlement.
Microsoft also should be willing to allow independent software vendors and others who wish to write to new versions of Windows access to application programming interfaces sufficiently in advance to allow simultaneous introduction of the new Windows version and application software to run on it. Indeed, Microsoft should want this result in order to enhance the demand for the new version of Windows.
Judge Jackson could then retain jurisdiction for the purpose of allowing the government to seek additional relief if these provisions prove to be inadequate to spawn new operating systems competitors.
For any settlement to be reached, however, those responsible for making decisions on behalf of the parties, particularly Microsoft, will have to take a long view of the benefits and risks of further litigation. Whether and to what extent they can do so will be almost as interesting to watch as the actual resolution of the case.